[AldonSseulJap] If You Plan Overseas Travel During the Holiday, Also Take Care of 'HwanTech'

Increasing Number of Hwan-Tech Investors Profiting from Exchange Rate Arbitrage
Financial Sector Launches Various Hwan-Tech Products

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Many people are planning overseas trips during the long holiday. However, you may have experienced the exchange rate rising just when you wanted to exchange currency, or struggled with leftover foreign currency after returning from a trip. Most people have had such experiences at least once. To target these customers, the financial sector offers various 'Hwan-tech' products. Hwan-tech lets you travel abroad and make money. We will kindly explain the concept and various Hwan-tech products.

What is Hwan-tech?

[Image source=Yonhap News]

Hwan-tech is a compound word of exchange rate + asset management, and is an investment method that generates profits by utilizing exchange rate fluctuations.

The reason Hwan-tech is possible is due to 'exchange gains.'

An exchange rate is the ratio when exchanging one country's currency for another's. Simply put, if the won-dollar exchange rate is 1300 won, it means you need 1300 won to buy 1 US dollar.

When the exchange rate rises or falls, a 'difference' from the original price occurs, resulting in either profit or loss.

'Hwan-tech' is an asset management technique that takes advantage of these fluctuating exchange rates to earn a profit.

For example, if you bought dollars when the exchange rate was 1300 won, and two months later the rate soared to 1500 won, you would gain a difference of 200 won per dollar.

Types of Hwan-tech?

Basically, Hwan-tech is about making a profit by utilizing exchange rate fluctuations.

Methods of Hwan-tech include buying and selling physical foreign currencies such as dollars or yen, but there are also various methods such as foreign currency deposits, ETFs, foreign exchange futures, and options trading.

The easiest way for us to access Hwan-tech is through foreign currency deposits. Foreign currency deposits are the most basic method, where you open a foreign currency deposit account at a domestic bank, hold foreign currency in the account, and then exchange it back to won when the exchange rate rises to make a profit.

If you invest in stocks, foreign currency ETFs are also a method of Hwan-tech. ETFs are funds that track specific indices or assets, and foreign currency ETFs are products that can generate profits depending on exchange rate fluctuations. For example, the higher the dollar rises, the more profit you make. Conversely, there are 'inverse ETFs' which generate profits when the dollar falls. Although they are 'funds,' they can be traded easily like stocks, making them a popular Hwan-tech method alongside foreign currency deposits.

What Hwan-tech products do banks offer?

Commercial banks offer various foreign currency accounts.

At KB Kookmin Bank, a representative product is the 'Baro Boneun Foreign Currency Account.' Previously, the currencies available for subscription were limited to the 'dollar,' but since last year, they have expanded to include yen and euro.

You can check real-time returns based on exchange rate fluctuations immediately, and the account can be opened conveniently via mobile without visiting a branch, which is also an advantage.

Commercial banks and internet banks are competitively targeting Hwan-tech users.

KakaoBank launched 'Dollar Box' and held an event giving 1 dollar upon account opening. KakaoBank's 'Dollar Box' allows you to accumulate dollars without exchange fees and freely withdraw them. A distinctive feature is that you can also gift accumulated dollars via KakaoTalk.

Another internet bank, Toss Bank, introduced a groundbreaking service in January this year, offering 'lifetime free exchange fees' for the first time in the financial sector. Toss Bank also has a feature where if a specific foreign currency falls below a set price, it automatically buys it while sending an alert, making it worth watching if you are interested in Hwan-tech. However, there is a daily limit of 10 million won to prevent currency speculation.

There are also various cards targeting Hwan-tech users, such as Travelog (Hana Bank) and SOL Travel (Shinhan Bank), which have no fees when buying foreign currency. They also have no fees for overseas ATM withdrawals. Travelog has a 'target exchange rate automatic recharge' function similar to Toss Bank's 'foreign currency accumulation.' However, fees apply when re-exchanging currency. This is also explained as a safety measure to prevent currency speculation. When converting foreign currency back to won, Travelog charges 1%, and SOL Travel applies up to 50% preferential exchange rates.

[Image source=Yonhap News]

Advantages and precautions of Hwan-tech?

First, an advantage is diversified investment. Since you hold additional currencies besides Korean won assets, you can diversify risk.

In particular, the 'dollar' is considered a representative safe asset and is preferred especially when the economy is difficult.

However, there are also precautions. Since Hwan-tech itself uses exchange rate volatility, uncertainty increases when exchange rate volatility is high.